Did two guys from Philly just create the best fantasy football platform?August 9, 2013: 5:00 AM ET
Reality Sports Online is betting on the market for a more intense and realistic fantasy football game.
By Craig Giammona
FORTUNE -- Yes, the NFL's salary cap might actually be a drawing card.
Two former employees of the Philadelphia Eagles are hoping there's room for a new product in the crowded fantasy football market.
Matt Papson and Stephen Wendell, who once shared an office at the Eagles complex, are trying to position Reality Sports Online as the fantasy football home for hardcore statistics wonks looking for a stiffer challenge than they can currently find at Yahoo (YHOO), ESPN (DIS), or CBS (CBS), the leading providers of fantasy sports games.
Reality Sports Online takes the experience of being a virtual general manager up two or three notches. A long-term deal for a star running back who rips up his knee playing basketball in the offseason? A big multiyear offer for a fading quarterback whose best days are behind him? It's going to hurt in the fantasy sports world Wendell and Papson have created, where players are signed to multiyear deals and salary cap restrictions mimic what general managers face in the real world.
The major innovation is a real-time free agency auction room that allows participants to bid on their favorite NFL stars for multiyear deals, with an algorithm acting as an agent for the players. The computer knows that Aaron Rodgers can do better than a one-year deal for $15 million, particularly when your best friend is offering three years at $50 million for the Green Bay signal caller.
"Everything we did, we started with the NFL rules and worked backwards," said Papson, who worked as a junior salary cap analyst for the Eagles after getting his master's degree in sports business from Georgetown. "At its roots that was what fantasy was supposed to be about. There was a fork in the road where fantasy sports became its own thing. We're trying to converge them back together."
Fantasy sports, once reliant on stats that were compiled by hand and arrived by fax or snail mail, have exploded in the last 15 years, as the Internet has streamlined record-keeping and made signing up for a team as easy as creating a Facebook profile.
An estimated 34 million Americans play fantasy sports, including more than 26 million who have a fantasy football team. The industry generated some $1.2 billion of revenue last year, growing on average 11.7% annually over the last five years, according to research from IBIS World.
The ideal customer for young entrepreneurs Wendell and Papson (Wendell turns 30 later this month and Papson is a few days shy of 27), who are charging $9.99 per team, is already deep into fantasy and probably has multiple teams across a variety of leagues. They're targeting the estimated 10 million fantasy sports players who pay $300 million a year for so-called hosting services, meaning they fork over cash to run advanced leagues.
These are guys like Matt Waldman, who manages seven to 10 fantasy teams a season and formerly ran a league where he kept track of contract values on a burdensome spreadsheet.
"I think they've taken what a lot of diehard fantasy football enthusiasts have tried to do with several big box commercial setups and put it into a system that is more efficient and easy to use," said Waldman, a magazine editor from Georgia who has written about football for the New York Times and runs a site used by some fantasy players called Rookie Scouting Portfolio. "This kind of more extensive element is always going to have an appeal."
Reality Sports Online launched with about $400,000 that Papson and Wendell lined up from investors and needs about 17,000 players to break even. They want to get there by 2015, at which point the software they commissioned to launch the company will be paid off.
They tested the fantasy game last year with about 500 players. This year, they're shooting to hit 3,000 players and were about 1,300 shy at the end of July. The first NFL regular season game is Sept. 5, giving the company about a month to nearly double its enrollment.
The duo thinks Reality Sports Online will appeal to more mathematically inclined football fans eager to strut their stuff in a way the more common leagues don't currently allow.
"I think the Wall Street guy crunching numbers can apply that to fantasy football," said Wendell, a lawyer by trade who played college baseball at Princeton. "With this, you can say 'I won because I'm smarter than you.' Wall Street guys like being able to say that."
The trick for Reality Sports Online is getting people to try their product. Old habits die hard, and many fantasy players have leagues they've been running for years on the established platforms. Last year, when it first launched, Papson and Wendell spent about $20,000 on banner ads, but they weren't that effective. This time around they're using a word-of-mouth approach, trying to create buzz through chat rooms and websites, including one run by Matt Waldman, that cater to hardcore fantasy players. They also recently launched a campaign with Groupon (GRPN).
The growth in fantasy sports is expected to slow down over the next few years. The market is not quite saturated, but experts say adding 1-2 million players a year -- the average over the past decade -- probably isn't sustainable.
Slowing growth doesn't particularly concern Papson and Wendell. They're not seeking neophytes. They're trying to carve out a slice of the deeply committed fantasy players who live and die each week on the performance of the NFL players they've cobbled together in cyberspace -- those who think they can do a better job than the 32 men running actual NFL teams. The bet is that those fantasy owners, already juggling upwards of 10 teams, will want one more. Salary cap and all.